Whenever most of us look for tax savings options during the time the taxman knocks our door, we tend to wittingly or unwittingly ignore ELSS as a tax savings instrument. Equity Linked Savings Scheme (ELSS) is a diversified equity mutual fund where major chunk of the corpus is invested into the equity market.
If you start investing in ELSS through the SIP route, each investment will envisage a lock-in period of 3 years from the date of investment. ELSS funds offer you two options – growth and dividend. In the growth option, you get a lump-sum amount after the completion of the lock-in period. In the dividend option, the investor gets dividend whenever a fund announces dividend even if it is in the lock-in period.
ELSS is becoming an increasingly popular instrument to save taxes, especially through the SIP route, let’s find out why it could be a useful investment for you.
One instrument, two benefits
ELSS provides you with the twin benefits of having the market edge owing to equity exposure your money enjoys coupled with the tax benefits under section 80C. Therefore, with ELSS, you are not just parking your funds in a plain vanilla instrument to just gain from tax savings. ELSS opens the option of earning stronger returns as well while you save your taxes.
Low lock-in period
ELSS has low lock-in period of just three years compared with other popular tax savings instruments such as PPF (15 years), NSC (6 years), tax-savings FD (5 years). Therefore, ELSS enjoys high liquidity.
Superior and tax-free returns
Out of all the tax savings options available under section 80C, returns from ELSS and PPF are tax-free. That said, ELSS provides you with the best returns simply due to its market edge. Returns from NSC and tax-savings FDs are taxable. Hence, ELSS gives you the best returns.
Gateway to equity investment
If you have certain inhibitions about investing in the mutual funds and have not invested either directly or indirectly into the equity markets, ELSS is the best way for you to start your equity journey. If you invest in the markets either directly or indirectly, a small rise or fall in the markets can trigger a wrong selling decision. This is where ELSS comes in handy. A lock-in period of 3 years in ELSS keeps you tied down and you can see clear returns over a period of three years. If you look at the last two decades, ELSS has provided the best returns compared with all the other tax savings instruments under 80C.
Therefore, go the SIP way to invest in ELSS now to save taxes and get superior returns while averaging out your market risks. If you want to know more about top ELSS schemes or want to start your financial planning, write to us at [email protected]
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.